The rise of cryptocurrency networks in Russia

Russian authorities have now begun recognizing Bitcoin as a foreign currency, and their interest is growing as the country disconnects from the SWIFT network, while still managing other types of banking transactions. Russia’s news agency, TASS, has reported on the Ministry of Finance and the Bank of Russia’s intention to legalize international payments using Bitcoin and other cryptocurrencies. Markus Jalmerot, co-founder of CryptoChipy Ltd, stated: “Legalizing crypto for international transfers seems like a natural decision for Russia. It will provide more options but will likely increase resistance and lead to additional KYC and AML requirements from European and North American governments.”

The Deputy Minister of Finance, Alexei Moiseev, discussed crypto regulations and mentioned that the necessary infrastructure must be legitimized first. CryptoChipy highlights that legalizing cross-border crypto transfers in Russia will be crucial, as Russians are already using international platforms to create cryptocurrency wallets. Moiseev recommended that crypto wallets be established within the country and under the supervision of the central bank, complying with Know Your Customer (KYC) and anti-money laundering (AML) standards. MICA will likely take on more responsibility, beyond preventing crashes like the Terra incident in the future.

It’s surprising to see the country move towards legalizing crypto payments after years of resistance. For example, the 2020 regulation “On Digital Financial Assets” prohibited the use of cryptocurrencies like Bitcoin as a payment method, drawing parallels between uncertified securities and non-cash money in the context of digital asset circulation.

Cryptocurrencies as a means of payment started to gain recognition in Russia by late 2021. President Vladimir Putin initially stated that using crypto for trading energy resources such as oil and gas was premature. However, the recent announcement legalizing crypto payments marks a significant shift. The sanctions against Russia have driven the country to adopt new technologies, using crypto services for transactions with vendors, such as Russia Briefing.

Bitcoin, Ether, USDT, PAXG, EURC, or other stablecoins from our top list could potentially serve as an international reserve currency. Russia is considering stablecoin platforms for payments with friendly nations, according to an article by TASS (The Russian News Agency, Available in English).

Legalizing Crypto for International Commerce

Russia’s central financial institution has adjusted its regulations concerning cryptocurrency and is collaborating with the Ministry of Finance to legalize international payments in the near future. TASS reports that this move aims to bypass the SWIFT disconnection and facilitate transactions to and from local vendors. CryptoChipy will continue to monitor cryptocurrencies such as Bitcoin following Russia’s decision to legalize their use in global trade.

Russian supporters have used cryptocurrencies to provide financial backing to the Russian military. For example, the producer of Lobaev arms called on his followers via Telegram to donate crypto to help provide ammunition to Russian troops in Ukraine.

The Necessity of Cryptocurrency Regulation

Moiseev emphasized the need for regulation in response to the financial evolution of currencies. Despite the growing need for digital currency legitimacy, the current infrastructure remains too rigid to support these changes effectively.

Moiseev suggests that proper regulation is needed to reduce issues such as money laundering, drug payments, and other forms of currency misuse. He notes that under the present conditions, cross-border crypto settlements are unavoidable.

Shifts in Opposition to Crypto

The war in Ukraine has caused a shift in Russia’s stance due to Western economic sanctions. This change indicates that Russia will eventually authorize cryptocurrency payments, particularly for international transactions. The only condition for this is that crypto does not enter Russia’s domestic financial system. The need to decriminalize cryptocurrencies has arisen as Russia looks to use crypto payments for international transactions. The sanctions have severely restricted Russia’s access to global financial systems.

Earlier in June, the Russian Parliament approved tax exemptions for issuers of digital assets. The new legislation exempts these issuers from value-added tax, despite concerns from the Bank of Russia regarding the financial instability that digital assets could cause to the country’s economy. The Bank of Russia has been focused on protecting the Russian Ruble as the only legal tender in the country. In February, Atomyze Russia received the first digital asset exchange license in the country, followed by a similar license for Sberbank (SBER.MM), a major bank. Lawmakers approved these changes due to the pressures of Western sanctions and the need for new legislation. The value-added tax exemptions also brought down tax rates on digital asset earnings, reducing the rate for Russian companies from 20% to 13%. Foreign companies would face a 15% rate.

Russia’s previously negative stance on crypto is now undergoing constant re-evaluation due to Western sanctions. The change is gradual, as the country now aims to utilize the asset class to navigate these sanctions. Russia is finally acknowledging the importance of cryptocurrencies. Following the invasion and subsequent sanctions, Bank of Russia Governor Elvira Nabiullina proposed using crypto for cross-border payments. Moiseev also stressed the need to find a way to legalize cryptocurrencies to facilitate crypto transactions within the country.